So can this stock rally be sustained?

Top of the News: The big question about today’s market rally is whether it will be the beginning of a turnaround or just a dead-cat bounce? It wasn’t just bank stocks that rose — this uptick is broad-based, with Boeing, Microsoft, Nordstrom and Starbucks among those seeing gains. What does the market want? Predictability. No more shocks. Investors will grab it while they have it.

As for banks, Citigroup posted an unexpected profit. Yet the backdrop of banking is more sobering. McClatchy’s crack Washington bureau dug deep into the latest regulatory reports of the five biggest banks. The verdict: They still face potentially catastrophic losses from derivatives if the recession worsens. Investors seemed heartened by Fed Chairman Bernanke’s speech today, where he talked about reforming accounting rules so they don’t “amplify” the ups and downs of the market.

Does this mean he’s backing away from his commitment to “mark to market” accounting? This rule means a bank must value an asset at its current market price — which has had bankers howling as values collapsed with the housing bubble. In its simplest form, this means the bank wishes it could value that foreclosed tract house in the middle of nowhere at $500,000 instead of today’s $100,000. The resulting “illiquid assets” include the mortgage-backed securities that have whacked the balance sheet of the Federal Home Loan Bank of Seattle. We’ll see. Bernanke and the SEC have both pledged to keep “mark to market.” So which is it?

Behind the News: Gov. Chris Gregoire will speak today to the Greater Seattle Chamber of Commerce, Prosperity Partnership and the Washington Roundtable in Seattle “to discuss the state’s efforts to protect and improve the state’s business climate.” Without meaning to be unkind, I’d say the governor will have to do more than pledge to cut back government like any business going through hard times and promise to eliminate some boards that no one has ever head of.

The serious cutbacks facing the state’s universities are among the most dangerous threats to the state remaining in the lead in innovation — and the bar is pretty low when comparing us to other U.S. states. The real competition is overseas. Washington’s less-than-stellar K-12 outcomes are another concern. And all this is affected by the mania to balance the budget — and the unwillingness to take on a tax structure that is incompatible with the needs of a populous state that wants to remain competitive. Maybe the speech will surprise us.